Miles White bets he can remake his company in the image of one of the health care industry's powerhouses.

As it tests a drug-coated heart stent  a tiny cylinder that keeps clogged arteries open  Abbott is sending its strongest signal yet that it plans to emulate Johnson & Johnson (J&J), the diversified New Jersey medical products giant known for cutting-edge technology and highly profitable brands.

Abbott CEO Miles D. White is placing big, simultaneous bets on new technologies in a range of medical markets, from drugs to spinal implants to the stent. Potential payoffs are huge, but so is the risk and the competition. The new ventures take Abbott beyond its traditional strongholds and pit the company against far bigger rivals, including role model J&J.

STENT TRIAL A KEY TEST

"J&J is the closest we have to our model today," says Richard A. Gonzalez, president and chief operating officer of Abbott's medical products group, acknowledging that Abbott has "studied J&J very carefully" but denying it's simply imitating the far larger competitor.

It's far from clear that Abbott has the heft to compete on the same field as J&J, which has twice the annual revenues of the North Chicago company and three times the market capitalization. Nowhere is that size disparity more apparent than in the stent business, where J&J is a leading player and is poised to get even bigger with the planned $24-billion acquisition of Guidant Corp., which developed one of the first stents. Abbott, meanwhile, has spent about $1 billion building up its heart business through smaller acquisitions.

Heart devices like ZoMaxx are a piece of Mr. White's plan over the past five years to transform Abbott from a hospital supplies and diagnostic test maker into a producer of highly profitable drugs and medical devices.

The heart business is small for Abbott  $225 million of Abbott's $19.68 billion in sales last year  but it represents a line that can grow fast and have high margins.

Abbott hopes the business will reach $1 billion in revenues by 2008, according to Robert B. Hance, the heart unit's president. A centerpiece of the division is the ZoMaxx stent, a metal mesh cylinder about the size of a spring in a ballpoint pen that aims to cut down the need for bypass surgery. Abbott hopes to get approval to sell the product in Europe next year and in the U.S. in 2007. If approvals come through, one analyst predicts ZoMaxx sales could reach $278 million by 2008.

But Abbott faces well-established competitors in J&J and Boston Scientific Corp., the only two makers of drug-coated heart stents. Abbott is hoping to become the third or fourth company to enter what is expected by next year to be a $6-billion market. Medtronic Inc., which has a cross-licensing agreement with Abbott, also is in the mix.

"Abbott has been so under the radar on this for a long time," says John Fraunces, portfolio manager at Solaris Asset Management in Bedford Hills, N.Y. "They're really trying to make a go at getting into the high-margin medical device area."

ABBOTT FOLLOWING PLAN

On paper, Abbott looks like an underdog. It's late to the game and it's much smaller than J&J. Abbott's research and development budget is a third of J&J's, which has about 40% of the market for drug-coated stents. J&J's archenemy, Boston Scientific, has the rest.

Still, Abbott executives say they are following a plan set in place several years ago after many strategic think sessions, in which Mr. White huddled with top executives. At the time, Abbott was contemplating becoming a bigger drug company. Options included spinning off businesses and acquiring others. After several acquisitions, Abbott last year spun off its hospital products business, Hospira. (See related story, this issue.)

In March 2001, Abbott paid $6.9 billion in cash to acquire the pharmaceuticals business of German chemical maker BASF AG. A deal that got less notice was the $640-million acquisition of medical instruments company Perclose Inc., which provided the foundation for Abbott's stent business. Perclose has the technology to stitch shut punctures left by angioplasty, the procedure used to clear arteries and insert stents. Abbott spent another $235 million for the stent business of Biocompatibles International plc in 2002 and purchased two smaller companies in 2003 to round out its heart device business.

Mr. Gonzalez, COO of Abbott's medical group, says the acquisition strategy marks a fundamental difference between Abbott and J&J: Abbott will build its business through smaller deals, rather than a Guidant-type takeover. (Mr. Hance, president of Abbott's heart unit, wouldn't say whether Abbott considered taking a run at Guidant. "Abbott takes a look at all sorts of opportunities," he says. "We'd be remiss not to look.")

In addition to heart products, Abbott is trying to build its spinal implants business, another small but fast-growing division. And this year, the company also aims to introduce a different type of stent  for carotid arteries  designed to prevent strokes.

BOTH STOCKS STRONG

The 2001 BASF drug acquisition gave Abbott the potential blockbuster Humira but it also made the company more dependent on the pharmaceutical business, which can be hurt by such things as generic competition. Drugs accounted for about 60% of Abbott's sales last year.

"Abbott is a nicely diversified company, but it gets a disproportionate amount of profit from the pharmaceutical side of the business," says Phillip Nalbone, an analyst with RBC Capital Markets in San Francisco. Mr. Nalbone rates Abbott as his top pick, largely on drugs and medical products the company has in development.

J&J and Abbott are the two most diversified big health care companies in the U.S., he says, though "J&J is much more so than Abbott at this point."

Stocks of both companies are doing well. Abbott traded at its highest prices in almost three years Friday, while J&J's stock hit an all-time high.